Money that kills business. Three financing mistakes
Mistake number one. Customers’ money is the cheapest
Prepayments for goods or services, contract advances, subscriptions and membership fees, and profits retained by the company-money already paid by the customer for something they will receive later-are the cheapest form of capital. For a business, this is an interest-free loan.
The gap between receipt and payment is essentially free financing. In essence, these are the funds often referred to as ‘revenue-based growth’. This is how Uber, Airbnb and Spotify started out. Long before their first investors, these platforms operated on customers’ money.
It is a mistake to think that you can build a business this way indefinitely. This money is limited by the number of customers and their willingness to pay ‘in advance’. And most importantly: customers’ money is a liability. It can be spent, but the service still needs to be provided. That is why a business that grows solely on the back of turnover often grows more slowly.
Prepayments for goods or services, contract advances, subscriptions and membership fees, and profits retained by the company-money already paid by the customer for something they will receive later-are the cheapest form of capital. For a business, this is an interest-free loan.
The gap between receipt and payment is essentially free financing. In essence, these are the funds often referred to as ‘revenue-based growth’. This is how Uber, Airbnb and Spotify started out. Long before their first investors, these platforms operated on customers’ money.
It is a mistake to think that you can build a business this way indefinitely. This money is limited by the number of customers and their willingness to pay ‘in advance’. And most importantly: customers’ money is a liability. It can be spent, but the service still needs to be provided. That is why a business that grows solely on the back of turnover often grows more slowly.
Mistake number two. Borrowed capital is a tool for accelerating growth
The second source of funding is bank loans or other forms of debt capital. Many entrepreneurs view debt as a sign of a business’s weakness. The logic is simple: a good business should grow organically.
It is becoming increasingly rare to hear that a good business should grow on its own and that debt is a sign of weakness. A loan is simply a tool for acceleration. No more, no less. If a company earns more on every dollar invested than the loan costs, the debt starts working for the business.
This is exactly how retail chains, manufacturing and distribution grow. Not from turnover. But from a combination of profit and credit.
But this is where another mistake arises. The entrepreneur sees access to credit and starts scaling not the business model, but expenditure.
The exact opposite of a safe loan is a loan with no margin for error. If a business is stable and profitable, a loan can be an effective tool for scaling up.
According to OECD data (2025), lending to small businesses has fallen sharply in most countries. High interest rates, uncertainty, and tighter requirements. Small companies are increasingly taking out short-term loans for day-to-day needs, not for growth. The key indicator of creditworthiness is the DSCR: the ratio of operating profit to debt repayments. Below 1.2, the business won’t be able to cope. A loan is a matter of discipline. Those who take one out without careful calculation do not accelerate growth. They accelerate bankruptcy.
The second source of funding is bank loans or other forms of debt capital. Many entrepreneurs view debt as a sign of a business’s weakness. The logic is simple: a good business should grow organically.
It is becoming increasingly rare to hear that a good business should grow on its own and that debt is a sign of weakness. A loan is simply a tool for acceleration. No more, no less. If a company earns more on every dollar invested than the loan costs, the debt starts working for the business.
This is exactly how retail chains, manufacturing and distribution grow. Not from turnover. But from a combination of profit and credit.
But this is where another mistake arises. The entrepreneur sees access to credit and starts scaling not the business model, but expenditure.
The exact opposite of a safe loan is a loan with no margin for error. If a business is stable and profitable, a loan can be an effective tool for scaling up.
According to OECD data (2025), lending to small businesses has fallen sharply in most countries. High interest rates, uncertainty, and tighter requirements. Small companies are increasingly taking out short-term loans for day-to-day needs, not for growth. The key indicator of creditworthiness is the DSCR: the ratio of operating profit to debt repayments. Below 1.2, the business won’t be able to cope. A loan is a matter of discipline. Those who take one out without careful calculation do not accelerate growth. They accelerate bankruptcy.
Sooner or later, every business faces the same question: where to get the money? Whether for growth, development, or-in the worst-case scenario-to cover debts or simply survive. Either way, there are only three sources: customers’ money, the bank, or investors. Each of these options comes with its own costs, risks and limitations.
And the problem lies in how entrepreneurs use this money. You can go bankrupt by squandering prepaid funds. You can ruin the company with loans if you scale up expenditure. You can lose your business because of a dishonest investor.
To prevent this from happening, you need to understand how each of these three sources works and exactly where entrepreneurs most often make mistakes. Read about this in the Eifos Hub article.
And the problem lies in how entrepreneurs use this money. You can go bankrupt by squandering prepaid funds. You can ruin the company with loans if you scale up expenditure. You can lose your business because of a dishonest investor.
To prevent this from happening, you need to understand how each of these three sources works and exactly where entrepreneurs most often make mistakes. Read about this in the Eifos Hub article.
Mistake number three: Investor money is the most expensive
The third source is investment. In this case, the entrepreneur receives money not as a loan, but in exchange for a stake in the company.
In reality, investor money is the most expensive of all possible sources. A loan has a fixed cost. Investment does not. The entrepreneur sells part of the company today, when it is worth, say, ten million
In 2025, the volume of venture capital investment in Europe reached €66.2 billion. The figure is large, but in itself it explains little. Venture capital appears where the conventional economy does not work: the business has no revenue yet, the product requires expensive R&D, or the market is structured in such a way that the winner takes almost everything. Under these conditions, banks do not lend, yet the business needs to grow quickly.
In all other cases, it is a premium paid for capital that could have been raised more cheaply. The entrepreneur gives up a stake in the business for money that could often have been raised more cheaply: through revenue or a loan. The difference becomes particularly noticeable later on, when the company begins to grow in earnest.
What kind of money is risky
Any kind-if it’s raised at the wrong time. Customer funds-if the business has received advance payments but cannot meet its obligations. Loan capital—if the company is unable to service its debt during a difficult month. Investor funds-if the founder has relinquished a controlling stake before the company has started to turn a profit.
The rule is simple. As long as the business can grow using client funds, take that opportunity. If there is a predictable cash flow and a specific project, consider borrowing, having first assessed your capabilities. If you decide to bring in investors, be fully aware of what you are giving up in return.
Every decision comes at a price.
Helping entrepreneurs understand exactly what funds they need right now, calculating the true cost of each option, and selecting the optimal financing structure - that is the mission of Eifos Hub.
The third source is investment. In this case, the entrepreneur receives money not as a loan, but in exchange for a stake in the company.
In reality, investor money is the most expensive of all possible sources. A loan has a fixed cost. Investment does not. The entrepreneur sells part of the company today, when it is worth, say, ten million
In 2025, the volume of venture capital investment in Europe reached €66.2 billion. The figure is large, but in itself it explains little. Venture capital appears where the conventional economy does not work: the business has no revenue yet, the product requires expensive R&D, or the market is structured in such a way that the winner takes almost everything. Under these conditions, banks do not lend, yet the business needs to grow quickly.
In all other cases, it is a premium paid for capital that could have been raised more cheaply. The entrepreneur gives up a stake in the business for money that could often have been raised more cheaply: through revenue or a loan. The difference becomes particularly noticeable later on, when the company begins to grow in earnest.
What kind of money is risky
Any kind-if it’s raised at the wrong time. Customer funds-if the business has received advance payments but cannot meet its obligations. Loan capital—if the company is unable to service its debt during a difficult month. Investor funds-if the founder has relinquished a controlling stake before the company has started to turn a profit.
The rule is simple. As long as the business can grow using client funds, take that opportunity. If there is a predictable cash flow and a specific project, consider borrowing, having first assessed your capabilities. If you decide to bring in investors, be fully aware of what you are giving up in return.
Every decision comes at a price.
Helping entrepreneurs understand exactly what funds they need right now, calculating the true cost of each option, and selecting the optimal financing structure - that is the mission of Eifos Hub.
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